Yahoo! Plunges as Outlook Disappoints (Update 2)

Yahoo! handily beat estimates but saw revenue moving in the wrong direction. Guidance fell short of estimates, hurting the stock in after-hours.

This story has been updated with additional information from Yahoo!'s conference call in the fifth paragraph.

NEW YORK ( TheStreet) -- Yahoo! ( YHOO) shares dropped 3.36% to $23.00 after the Internet giant posted earnings that beat Wall Street expectations, but revenue continued to move in the wrong direction and guidance fell short of estimates.

Yahoo! reported first-quarter non-GAAP earnings of 38 cents per share on $1.14 billion in revenue, excluding traffic acquisition costs. Including TAC, sales were $1.07 billion. The company excluded stock-based compensation of $45 million in its earnings results for the first time.

The company noted display revenue ex-TAC was $402 million for the first quarter of 2013, down 11% year-over-year. Search revenue also declined year-over-year, coming in at $425 million, down from $470 million in the first quarter of 2012.

Analysts polled by Thomson Reuters expected Yahoo! to earn 24 cents per share on $1.099 billion in revenue for the first quarter. The consensus estimate from Estimize called for 26 cents per share on $1.11 billion in revenue.

"I'm pleased with Yahoo!'s performance in the first quarter. We saw continued stability in our business, strengthened our team, and started the year with fast execution against our products and partnerships," said Yahoo! CEO Marissa Mayer. "We are moving quickly to roll out beautifully designed, more intuitive experiences for our users. I'm confident that the improvements we're making to our products will set up the Company for long-term growth."

On the conference call, Mayer asserted that Yahoo! is best positioned in the industry because it is able to partner with other heavyweights such as Apple ( AAPL), Google ( GOOG), Facebook ( FB) and Microsoft ( MSFT). "Partnerships is a huge differentiator for Yahoo!," Mayer said on the call. "We want to put our users first and make their daily routines truly delightful." She later added that she had nothing new to add to the company's existing partnership deals, but noted that Yahoo! is constantly working to explore new possibilities.

The company ended the quarter with $5.4 billion in cash, down from $6 billion at the end of 2012. During the quarter, Yahoo! repurchased 38 million shares for $775 million.

Second-quarter guidance for Yahoo! missed estimates. Excluding TAC, revenue is expected to be between $1.06 billion and $1.09 billion, with non-GAAP operating income between $190 million and $210 million. Analysts polled by Thomson Reuters are looking for $1.12 billion in sales.

Shares of Yahoo! closed the regular session lower, falling 0.75% to finish at $23.80. The stock is down sharply in extended-hours trading, down 4.58% to $22.70 according to Nasdaq.com.